Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Swiss Re to originate new premiums with resilience insurance initiative


Swiss Re has collaborated with Veolia and The Rockefeller Foundation, revealing a new scheme designed to improve the resilience of cities and their infrastructure in the face of natural catastrophes or weather disasters. A venture that also has the potential to originate new risk for the reinsurance giant.

Climate change, large-scale urban and coastal migration, rising asset values and the apparent rise in the frequency of catastrophe events globally, are just a few of the factors that have, and continue to contribute to the evolving global risk landscape.

And as the world continues to shrink, and globally populations rise alongside the value of individual assets, infrastructure and economies as a whole in concentrated regions that are increasingly susceptible to natural disasters, the need for cities to improve disaster resilience is evident.

The new initiative from Swiss Re, Veolia, and The Rockefeller Foundation is designed to address exactly this issue, by supporting cities across the globe in climate change adaptation, the enhancement of infrastructure and recovery, and disaster risk reduction, ultimately helping to quicken economic recovery following a catastrophe event.

The scheme was brokered by 100 Resilient Cities (100RC), an entity that was established by The Rockefeller Foundation to enable cities to better understand its infrastructure exposure to natural disaster risks, with a goal of providing fast financial assistance post-event.

“Under the partnership agreement, Swiss Re and Veolia will work with cities to understand the risk exposure of critical assets under current and future climate scenarios. Based on these assessments, cities can develop resilience plans to lessen the risk of these assets being affected, and simultaneously reduce their risk exposure over time,” explains Swiss Re.

The reinsurer continues to explain that working alongside Veolia, a pilot initiative in a 100RC city like New Orleans will be developed in the future, which could “focus on some of the city’s infrastructure, including critical water and wastewater systems.”

President of The Rockefeller Foundation, Dr. Judith Rodin said; “Through the combination of their expertise, this initiative will help cities identify both vulnerabilities and opportunities, and pave the way for enhanced resilience.

“Investments in resilience-building ensure that the very fabric of our communities remains strong, in good times and bad.”

The fact that reinsurance firm Swiss Re and Veolia aim to work with individual cities in order to tailor a solution that fits its individual needs, suggests flexibility in terms of the structural and financial agreement for any infrastructure resilience solution.

Essentially, then, the initiative is also originating new sources of risk for the reinsurer, and owing to factors such as migration and climate change, this type of solution could offer the broader insurance, reinsurance, and insurance-linked securities (ILS) markets welcomed opportunities to access new, diversifying risk, stimulating demand for coverage for risks that were not protected in the past.

“When we joined the 100 Resilient Cities project as one of its founding partners in 2013, part of the commitment was to create a functional toolbox for cities to assess, price, prepare for and mitigate risks.

“Our partnership with Veolia brings us one step closer to fulfilling that vision, and we’re convinced that if we can make it a success, the concept can be scaled and replicated for other cities, and for other services. It’s an important step in moving resilience from talk to action,” said Agostino Galvagni, CEO Swiss Re Corporate Solutions.

This type of product has the potential in future to bring new premiums to Swiss Re and its Corporate Solutions division, by providing the resilience insurance and risk transfer required, as well as to the wider market in the future. The majority, if not all of the cities around the globe are in need of greater infrastructure resilience pre, and enhanced re-financing capabilities post, disaster event, making such initiatives big business opportunities in re/insurance and risk transfer.

A reinsurer as large as Swiss Re placing such emphasis and commitment to this kind of product/asset class shows just how attractive it will likely be to other reinsurance entities, and also the capital markets.

It might be possible that a reinsurer with a balance sheet as large as Swiss Re’s will be able to assume all of the newly originated risk themselves, or would at least like to, but given the pressures on rates and competition in existing business lines across the re/insurance sector, other players will likely want to capitalise on the opportunity as well.

Swiss Re could in time also require retrocessional reinsurance for any risks it takes on through these resilience insurance efforts, which could lead to a use of the capital markets and ILS.

Another interesting thing to note on this initiatives, is that it’s possible that any resilience insurance type product developed by Swiss Re could directly compete with the RE:bound programme for the risks both would be seeking to cover.

Swiss Re and the Rockefeller Foundation, in conjunction with risk modeller RMS developed a resilience (catastrophe) bond framework late last year, which utilising a catastrophe bond structure aims to protect the financing of resilient infrastructure projects around the globe. This could be the retro provision that Swiss Re would eventually need, but it could also be the corporate insurance and risk transfer, so perhaps could compete for the same premiums in time.

The new venture, as with the RE:bound project has the potential to provide cities with access to readily available funds as soon as disaster strikes, something which is achievable through an ILS-type solution, like a cat bond, that utilise a parametric trigger. With a key driver of the new initiative aiming to ensure economies are able to rebuild as quick as possible post-event, a parametric trigger structured insurance, reinsurance, or ILS solution would be highly suitable.

With organic growth opportunities being limited in recent times risk transfer entities across the globe are keen to access new risks in diversifying geographies, something the new venture has the potential to unlock.

And while providing an opportunity to re/insurers and ILS players, the successful adoption of the scheme should also strengthen the resilience, infrastructure, and financial sustainability of economies around the globe as the threat and potential costs of natural disasters continues to rise.

“This partnership is a sign that the private sector better understands what cities need to build resilience, and cities will no longer have to make difficult and often inefficient decisions after experiencing a disaster. They will know what is at risk, how it needs to improve, who will fix it, and where the funds will come from, all of which allows them to rebound more quickly.

“Hopefully, this is the just the beginning, and when other market leaders recognize the importance of what Swiss Re and Veolia are doing, they too will begin to really innovate,” said Michael Berkowitz, President of 100 Resilient Cities.

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